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Building patience and a portfolio

Transcript

00:29:00 TONYA: So that’s diversification. Now we’re building a portfolio, right? Because that’s what all this is, it fits into our portfolio. So actually, let’s dial it back. The basics: what is a portfolio?

00:29:12 DAN: Absolutely. An investment portfolio is just a collection of all your investments. So you might have some stocks, some bonds, some mutual funds, some ETFs. All of that together is your portfolio that you have hopefully built by looking at your risk tolerance, your time horizon, your diversification needs, all those things we talked about kind of come together in one nice pot, basically.

00:29:41 EARL: Yep. And you get these investments and get them together and low and behold things changes within your life, within some entity, whatever, and you have to constantly focus on them. You can’t just build them, and set them there] and just leave them. You gotta go and make sure that they are doing what you need, they’re helping you accomplish your goals, and they’re acting as your whole portfolio in terms of what you’re trying to do.

00:30:14 DAN: Yes. Absolutely. So, for me, building a portfolio is kind of like ordering off a menu. So you go buy some stock, you’re getting into something that’s high-risk, right? So it’s kind of like going to a menu and saying, “Hey, I want this thing.” So maybe that’s yogurt. But if you go in and say you want yogurt, they’re going to give it to you. And then you say, “I want oatmeal”, they’re gonna give it to you. And then you say, “I want buffalo wings”, and they’re gonna give it to you.

So if you kind of order a bunch of different things that don’t make sense together, they don’t know any better. You went in and asked for each thing individually. They’re just gonna give it to you, let you have that, even if it’s kind of nasty.

00:30:51 TONYA: Yeah.

00:30:52 EARL: And that is nasty, what you just said.

00:30:53 TONYA: Yeah, indigestion and everything else.

00:30:58 DAN: So, building your portfolio is going in and saying, “Hey, yogurt’s great. Oatmeal’s great. Whatever’s great. But I need to build myself a meal. I wanna get a little bit of this, a little bit of that, a little bit of this, but I’m really comfortable with what I’m getting. And to the point we made earlier, that Earl made earlier, as you age, and your goals chance, what you wanna eat is gonna chance. So you’re gonna change your portfolio to kind of match your appetite at the time.

00:31:22 TONYA: Yeah, and I love that. I love that example. You’re creating a complementary menu so that all the items complement each other.

00:31:28 EARL: Yeah, exactly. And, of course you could look at it from a pie chart standpoint, which is pie, I guess leading into what she was talking about.

00:31:37 DAN: Yeah, there you go.

00:31:38 TONYA: Not as exciting at buffalo wings and yogurt.

00:31:41 EARL: Not as, banana pudding and all that kind of stuff. You can have some of that, actually I’m preferably okay. But anyway, I’m building my portfolio. And we’re not talking about it today, but there could be some real estate in there, whatever it is that makes up my menu, what I have in terms of that I’m gonna be working from and investing from. That’s my portfolio that I built. Now I gotta manage it.

I can’t just leave it there, and let it sit, and not pay attention to it. I gotta make sure that this thing is not gonna be static. It’s gonna be dynamic. It’s always gonna be changing. There’s always changes going on so I gotta make sure that I’m paying attention to it so that I can have it do the best job that I can in reaching my goal.

00:32:28 DAN: And what I love about that pie chart analogy is that’s what you’re gonna see.

00:32:31 TONYA: Yeah.

00:32:32 DAN: Out in the world. If you go look at your retirement or some other portfolio you may have, they’re likely gonna show you a pie chart, and it’s gonna have all these pieces. And hopefully now, after talking about this, you’ll understand, “Oh, this says ‘fixed income’, that means bonds. This says ‘equities’, that means stock”, and you can start to think about, “Is this the meal I wanna eat? Or do I maybe need to return those buffalo wings and get something a little different?”

00:32:55 TONYA: Absolutely. So it’s important to build a portfolio that is complementary so that everything works together and works for you instead of against you in your financial goals. I think that we have a better understanding of how to build a proper investment portfolio that works for us, right?

00:33:08 EARL: Yes.

00:33:09 TONYA: Let’s have a look at what we’ve learned.

00:33:10

(Music / Chapter 8 Ends with Key Takeaways slide)

Chapter 7: Building your portfolio

A portfolio is simply a collection of all of your investment assets in one place. Keep a good mix of asset classes: stocks, bonds, and cash equivalents to help you reduce the effects of a volatile market.

Developing investment patience is one key factor to building your investment and retirement portfolios. Your portfolio will take time to develop and mature. Keep a long-term perspective in mind (especially for retirement) and monitor your investments. Over time, you'll make the appropriate adjustments to align with your objectives.

If you experience a major life change, you should reassess your investments and make changes to adapt your strategy to your new situation.

Something to consider as you’re building your portfolio is to educate yourself about the investments that are available in the market, and the level of risk each of them hold. You can then choose different types of investments depending on your needs.